Why You Need to Learn Accounting (the Basics, That Is)

The Basics of Accounting

Good accounting is often obtained
by hiring good accountants or CPAs and/or having well-placed accounting procedures
and systems. Most businessman and company owners stop here, thinking that good
CPAs and good systems are all they need. Personally, I think this is a big
mistake. As a CPA with my own local bookkeeping practice, I’ve seen clients
(mine or other accountant’s) leaving everything related to accounting and
taxation to their accountants. They reason out that this is what they are
paying for and they can’t be bothered worrying about accounting as they are
already busy with their operations. Then come tax season or financial reporting
deadlines, they scramble to understand their numbers and their taxes, putting
(more) pressure on them and their accountants.

I’ve experienced all these and
more. This made me really really appreciate my clients who take the time to
talk to (or even debate with) me about their financials. Not that they are
accounting graduates or CPAs or even management graduates, but these clients
are willing and open to learn and understand the financial reports that they
are reading. They are the clients who found out (at a very early stage) that
accounting and financial reporting are some of the things they need to learn
(or even immerse themselves in) if they want to make a success out of their
businesses. This is the reason why I often wish that more people understand
accounting, even just the basics. Why? Let me give a few advantages:

You Get to Understand Your Financials. Accountants prepare the
financial reports of their clients or their companies. But who’s the ones
really responsible for the financial reports? The management, which oftentimes
does not include the accountants (we’re just the hired help!), and, ultimately,
the Board of Directors of the company. So, if you are a member of the
management or the Board, take the time to learn the basics of accounting so
that next time you see the financial reports, you at least know what it is you
are reading. It’s not all alien-sounding and alien-looking to you. Also, it
makes it easier for your accountant and you to talk about the report. Believe
me, I’ve been to meetings discussing financial reports wherein I feel that I’m
talking in the local language while the management is talking in a foreign
language. Not a pleasant experience!

You Get to Analyze Your Numbers. Why did sales increase? Why did
our expenses increase? Where did our money go? Why are we losing when our cash
is increasing? These are just some of the questions that I’ve encountered
throughout these years when my clients’ management sees the financial reports.
Of course, I tried to answer them as tactfully as possible. But in my mind,
what I would have wanted to reply was “hey, this is your company, shouldn’t you
know about this stuff?” In fairness to the management, it has its own idea of
profit, cash position, sales and expenses but oftentimes than not, these ideas do
not really coincide with the accounting concepts. Knowing a little bit (okay a
lot!) of accounting will make it easier for management (and for everybody) to
analyze the numbers in the financial reports (with or without the help of the
accountants), as these are the ones that go out to the public for their
consumption.

You Get to Analyze the Accounting Impact of Your Major Decisions.
Let’s face it. Accounting is reactive.
We, accountants, only record transactions after
they are done. By that time, management’s decisions have already been made and
it is already too late to address these decisions in case they have a negative
impact on the financials of the company. If the management knows accounting, or
at least, keeps in mind that any decisions it makes may have an accounting
impact, the management may run some accounting numbers or even consult their
accountants (and sometimes, even the external auditors) before going through
the transaction. Believe me, I’ve seen some decisions implemented by management
that have really negative impact on the company’s numbers. This made the accountants
scramble to try to reduce this negative impact. So, have pity on your
accountants (and yourselves) and try to look at the accounting side of your
decisions first before implementing them.

The above are just some of the
advantages I can think of right now. There are some disadvantages, mainly you
will have to spend more of your time learning and understanding accounting
(which is not really that easy). But
in the end, it’s all worth it and your accountants will really appreciate
knowing that you know and understand (not to mention appreciate) their work. Just
remember, accounting is an integral part of your business and should not be
relegated to the sides. As part of the management or as the owner himself (or
herself) it is to your advantage to learn the basics of the accounting,
especially those that apply to your business or company.

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Comments

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jessesToons

6 years ago

I never would have guessed that you needed to know that stuff. I have decided that it is important to know these things too! I have a few friends who are going to school to become accountants Calgary. I think its great, there all excited about it! http://www.quonassociates.ca/en/

Audit Guru

7 years ago

Having the accounting basics down is always extremely important to a business career

Peachtree City CPA

8 years ago

There are some areas in business where a business owner should not cut corners. Legal help and CPAs are certainly two of those areas. Great article

Business Finance Man

8 years ago

As an accountant I can understand why the small business owner has neither the time or inclination to do the books and hence delegates the task to a professional. It's the quality of information coming out of this process that can inform a business owner how to make changes to improve their business and their profits. For that reason alone it has to be worth an owner investing the time to work out how to interpret the financials.

AUTHOR

emievil

8 years agofrom Philippines

Unfortunately, majority of my clients think it's all right to leave everything to their accountant. Some of them do make the effort but without a solid accounting background, they often get lost in translation and I have to describe what I'm saying in laymen's terms before they can fully understand accounting.

Tony Lawrence

8 years agofrom SE MA

Absolutely. That is one of the very first things I tell people who are contemplating self employment: understand the basis of accounting and taxes. You can have someone else do the work, but understand it fully.

AUTHOR

emievil

8 years agofrom Philippines

Thanks EFPotter.

EFPotter

8 years ago

I've taken business math and accounting, and let me tell you never once have I ever asked, "When am I going to USE this?!" THESE are the math classes that should be required in high school, I think. Totally agree with your hub.

online bookkeeping courses

9 years ago

Good thorough information, always a pleasure to find info that is useful, will be very happy to see more from you in the future

Hi Carol. How are you? Haven't heard from you for quite a while now. Robert Kiyosaki is right. Knowing accounting and basic business law is quite an edge if you're a businessman or is self-employed. Some families here who are in business go a step further, they ensure that at least one of the children become an accountant. Quite a strategy, I would say :).

Carolyn Blacknall

9 years agofrom Houston, Texas

Robert Kiyosaki, who wrote Rich Dad, Poor Dad says every person who owns a business or is self employed should learn basic accounting and basic business law. Thanks for this hub. Good videos, too. - Carol

Vizey

9 years ago

These days Accounting has become very easy because of computer and software. There are lots of softwares specializing in accounting that everyone can use.

AUTHOR

emievil

9 years agofrom Philippines

Yes but unfortunately some businessmen prefer to leave everything to their accountants and in the end regret their decisions =). Thanks for the comment.

Marketing Truth

9 years ago

Very good hub and I agree with you that a business owner should at least understand the basics of accounting. This can only be an asset to the proprietor.

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